Serco Group Plc · LSE:SRP
Serco — H1 2004 Earnings Presentation
52 slides from Serco's earnings presentation, 2004
Slide 1: Interim Results Presentation 2004
Serco Group plc Interim Results Presentation 2004
Slide 2: Agenda
Agenda Introduction Financial results Business performance Looking forward Agenda
Slide 3: Introduction
Introduction Kevin Beeston Executive Chairman Introduction
Slide 4: 2004 Interim results - highlights
2004 Interim results - highlights Turnover £804.5m up 11.3% Profit before tax - pre goodwill £36.5m up 16.5% Earnings per share - pre goodwill 6.09p up 18.2% Dividend per share 0.81p up 12.5% Free cash flow £23.5m up 65.5%
Slide 5: Company highlights
Company highlights • Strong increases in sales and profits • Strong organic growth • Further improved cash performance • High visibility of future earnings • Substantial range of future opportunities • Order book of £10.3bn
Slide 6: Financial results
Financial results Profit and loss Cash flow Net debt Pension funding International Financial Reporting Standards Andrew Jenner Finance Director Financial results
Slide 7: Profit and loss
Profit and loss 67 1,555 1,326 57 1,141 45 958 38 36 804 31 723 28 626 24 24 526 526 451 19 00 01 02 03 04 00 01 02 03 04 Turnover £’m Profit before tax £’m Including joint ventures Before amortisation of goodwill Half year Full year 2004 Half year
Slide 8: Profit and loss
Profit and loss 2004 2003 Six months to 30 June £m £m Increase Total turnover 804.5 722.6 11.3% Group turnover 684.1 608.6 Joint venture turnover 120.4 114.0 Gross profit 94.6 83.2 13.8% Administrative expenses (68.9) (61.8) Exceptional items (net) - (0.5) Joint venture profit 11.8 11.8 Net group in
Slide 9: Cash flow highlights
Cash flow highlights • Free cash inflow of £23.5m (2003: £14.2m) • 70% of group EBITDA converted into operating cash (2003: 58%) • Continued working capital efficiency: 2004 increase £11m (2003 increase £11m)
Slide 10: Free cash flow
Free cash flow 2004 2003 Six months to 30 June £m £m Group EBITDA 37.1 26.7 Working capital movement (11.1) (11.3) Operating cashflow 26.0 15.4 Dividends from joint ventures 6.2 4.6 Interest and taxation 3.0 (5.1) Capital expenditure (8.0) (12.5) Disposal of assets - 4.9 GSR sale and leaseback - 5.8
Slide 11: Cash flow
Cash flow 2004 2003 Six months to 30 June £m £m Free cash flow 23.5 14.2 Disposals/(acquisitions) 3.6 (5.3) Other financing (10.0) (1.5) Dividends paid (7.0) (6.2) Non-recourse debt financed assets (12.7) - Net cash flow (2.6) 1.2
Slide 12: Net debt
Net debt 30 06 04 31 12 03 As at £m £m Closing cash 168.3 170.9 Long term loans (164.1) (165.3) Other loans and finance leases (21.8) (27.9) Recourse net debt (17.6) (22.3) Non-recourse debt (346.5) (357.0) Total net debt (364.1) (379.3)
Slide 13: Pensions
Pensions • Continue to adopt transitional rules of FRS 17 Retirement Benefits • At 30 June 2004 market value (FRS 17) net deficit estimated to have marginally reduced from 31 December 2003 (£70m) • Long term employer contributions increased in 2003 by approximately £9m per annum and maintained in 20
Slide 14: International Financial Reporting Standards (IFRS)
International Financial Reporting Standards (IFRS) • Applicable to accounting periods beginning on or after 1 January 2005 • Preparation began over 12 months ago • Areas of difference to UK GAAP include: goodwill, financial instruments, pensions, share based payments, joint ventures and taxation • U
Slide 15: Business Performance
Business Strong operational performance Performance Premier Custodial Group Disposals Contract examples Building to last Christopher Hyman Chief Executive Business Performance
Slide 16: Highlights
Highlights • UK major contributor to growth • Significant success with key rebids • Meaningful progress in long term markets • Focussed management on cash and bid costs • PCG acquisition and Asia Pacific disposals on track
Slide 17: Strong operational performance
Strong operational performance • 66% of turnover growth from existing contracts • Rebid win rate maintained at over 90% • Continuing to win 1 out of 2 new bids • £5.3bn bids submitted and under evaluation • Order book at 30 June 04 stands at £10.3bn • Over £16bn of potential future opportunities ide
Slide 18: Premier Custodial Group
Premier Custodial Group • Significant growth under Serco’s ownership • Added £35m to sales in the first half • Continued expansion of the contract base • Colnbrook • HMP & YOI Ashfield • Prisoner Escort and Custody Services • Wide range of future opportunities • Catalyst for a broader home affairs a
Slide 19: Disposals
Disposals • Portfolio kept under constant review to ensure focus on areas with greatest growth potential and profitability • Disposed of a number of contracts in Australia and New Zealand • Rail maintenance contract exited • Swedish business sold in 2003 • Annualised impact on turnover is £140m
Slide 20: Organic growth examples
Organic growth examples Contract name Years Contract value Country Fylingdales SSPAR 8 £31.3m UK Eastbourne Leisure 15 £20m UK Eastbourne – Building Maintenance 3 £30m UK NACMAC – Yeovilton and Culdrose 3 £40.2m UK RAF Northolt and Uxbridge 5 £55m UK Melbourne City Open Space Management 10 AUS$16m A
Slide 21: RAF Fylingdales
RAF Fylingdales SSPAR Contract Value: £31.3m Contract Duration: 8 Years • Solid State Phased Array Radar (SSPAR) • Partner of choice since 1963 – over 40 years • Only contractor to have been successful in 10 rebids • Covers the operation, maintenance and repair of the SSPAR
Slide 22: RAF Northolt and Uxbridge
RAF Northolt and Uxbridge Contract Value: £55m Contract Duration: 5 Years • Multi-activity contract • Responsible for No 32 (The Royal) Squadron, also known as the Queen’s Flight • Maintenance and associated support for the aircraft of the squadron • Royal VVIP and VIP flying of senior military and
Slide 23: Abu Dhabi & Al Ain Aeronautical Services
Abu Dhabi & Al Ain Aeronautical Services Contract Value: DHS 220m Contract Duration: 5 Years • Provision of air traffic, electronic engineering and aviation meteorological services • Abu Dhabi is to undergo extensive development during the next contract period with a significant increase in traffic
Slide 24: Nuclear Propulsion Technical Support
Nuclear Propulsion Technical Support Contract Value: £50m Contract Duration: 5 Years • Contract with the MOD Defence Procurement Agency • Independent nuclear safety assessment for the Naval Nuclear Propulsion IPT • Regulatory support to the Naval Nuclear Regulatory Panel • Places Serco in a unique p
Slide 25: New contract examples
New contract examples Contract name Years Contract value Country Exelon (PECO) 3 $15m USA Electronic Management of Abnormal Loads (ESDAL) 4 £8m UK Microsoft 4 £4m EIRE EUMETSAT Polar Systems Operations 6 €4.2m DE Schools Monheim 5 €3.8m DE Mycroft - IND 5 £40m UK Hong Kong Shenzhen Western Corridor
Slide 26: PECO
PECO Contract Value: $15m Contract Duration: 3 Years • PECO is a natural gas and electric utility in Pennsylvania, USA • Preferred supplier of fleet management services to Exelon, PECO’s parent • Fleet maintenance over 10 sites • Covers a fleet of 1,500 vehicles
Slide 27: EUMETSAT
EUMETSAT (Polar System) Operations Contract Value: €4.2m Contract Duration: 6 Years Copyright 2004 © EUMETSAT • Control centre located in Darmstadt, Germany • Provision of satellite controllers and analysts • Satellites provide meteorological information, including temperature and moisture profiles
Slide 28: Prisoner Escort and Custody Services
Prisoner Escort and Custody Services Contract Value: £300m Contract Duration: 7 Years • Started on 29 August 2004 • Significant expansion of the original contract - 40% increase in volume • Premier will now be responsible for 25% of the market in England and Wales - previously was 17% • Covers the s
Slide 29: Mycroft
Mycroft Contract Value: £40m Contract Duration: 5 Years • Builds on our National Crime Squad contract • Secure networked IT system for the Immigration and Nationality Directorate (IND) • Infrastructure provision, including highly secure workstations • First Mycroft users are scheduled to go live in
Slide 30: Northern Rail (preferred bidder)
Northern Rail (preferred bidder) Contract Value: Serco’s share £2bn Contract Duration: 8 Years, 9 Months • 50:50 joint venture with NedRailways • Will provide inter-urban commuter and rural services throughout the North of England • Northern Rail’s train services will operate over 1,675 miles of the
Slide 31: 2004 Turnover growth
2004 Turnover growth £37.2m £804.5m £54.4m New Awards £722.6m £(45.0)m £35.3m Changes in Scale and Scope Disposals Acquisitions 2003 half-year turnover 2004 half-year turnover
Slide 32: Market sector analysis
Market sector analysis 2004 half-year turnover £804.5m including joint ventures Civil government 35% Defence 30% 2003 half-year turnover £722.6m Private sector 6% including joint ventures Transport 21% Science 8% Defence 26% Civil government 28% Private sector 11% Science 8% Transport 27%
Slide 33: Geographical analysis
Geographical analysis 2004 half-year turnover £804.5m including joint ventures North America 6% UK 73% Asia Pacific 10% Europe and Middle East 11% 2003 half-year turnover £722.6m including joint ventures North America 5% Asia Pacific 11% UK 71% Europe and Middle East 13%
Slide 34: Continued high visibility of earnings
Continued high visibility of earnings Global order book breakdown by sector as at 30 June 2004 Defence £2.8bn Transport £1.7bn Civil government £4.5bn Science £0.9bn Private sector £0.4bn Total £10.3bn
Slide 35: Continued high visibility of earnings
Continued high visibility of earnings Near term confirmed order book as at 30 June 2004 percentage of planned revenue 2004 99% 93.1% 4.1% 2.2% 2005 87% 58.0% 14.0% 15.3% 2006 75% 41.9% 19.4% 13.4% Order book Extension and rebids Preferred bidder
Slide 36: Building to last
Building to last • Serco Management System underpins the business • Reinforcement of our systems and processes • Communication of our governing principles • People and leadership development • Knowledge management system development • Performance measurement • Portfolio re-balancing
Slide 37: Looking forward
Looking forward Market context Serco’s positioning Strategy Outlook Kevin Beeston Executive Chairman Looking forward
Slide 38: World market context
Looking forward World market context • Increasing opportunities worldwide, driven by need to improve efficiency and quality of public services • UK - Gershon Efficiency Review, Comprehensive Spending Review, Local Government Public Service Agreements • US - President’s Management Agenda • Germany –
Slide 39: Looking forward: United Kingdom
Looking forward United Kingdom
Slide 40: UK market context
Looking forward UK market context • Gershon Efficiency Review • Savings of £20bn per annum by 2007/08 • Creates outsourcing and consulting opportunities • Improvement in procurement processes • Savings embedded in Comprehensive Spending Review • Increasing performance targets • Comprehensive Spendin
Slide 41: Serco's positioning - UK
Looking forward Serco’s positioning - UK Defence • Defence spending up 1.4% p.a. in real terms • Spending remains tight but efficiency drive expected to lead to more outsourcing • Opportunities in equipment support, training and communication technology Transport • Public transport spending up 4.5%
Slide 42: Serco's positioning - UK
Looking forward Serco’s positioning - UK Justice • Home Office and justice real spending up 4% p.a. • 15% overall crime reduction targeted • Formation of SOCA and NOMS • 12% per annum increase in spending across departments on counter-terrorism and civil resilience Education • Real spending growth o
Slide 43: Serco's positioning - UK
Looking forward Serco’s positioning - UK Health • NHS spending up 7% p.a. in real terms • Additional hospital PFIs create new opportunities Science • Ten year framework for science and innovation, looking to increase R&D spending to 2.5% of GDP • Increased funding for science in DfES and DTI spendin
Slide 44: Looking forward: North America
Looking forward North America
Slide 45: Serco's positioning - North America
Looking forward Serco’s positioning - North America • US budget deficits are key driver • Potential US outsourcing market estimated at $675bn • Increasing opportunities with US federal and some state governments • Major US FAA supplier • First A76 contract for US Forest Service • Expanding presence
Slide 46: Looking forward: Mainland Europe and the Middle East
Looking forward Mainland Europe and the Middle East
Slide 47: Serco's positioning - Mainland Europe and Middle East
Looking forward Serco’s positioning - Mainland Europe and Middle East • Nation by nation approach • Presence across a range of sectors • Transferring expertise from other markets e.g. PFI • German Army’s Combat Training Centre - first total service outsource contract • Developing German bus, rail an
Slide 48: Looking forward: Asia Pacific
Looking forward Asia Pacific
Slide 49: Serco's positioning - Asia Pacific
Looking forward Serco’s positioning - Asia Pacific • Focus on defence and transport in Australia • Bid submitted for Royal Australian Navy Patrol Boats • Favourable markets emerging for outsourced public services in Singapore and Hong Kong
Slide 50: Strategy
Looking forward Strategy • Focus on UK public sector • Selected overseas markets • Total managed solutions • Controlled growth • Increasing returns
Slide 51: Outlook / Questions and Answers
Looking forward Outlook • Strong track record and reputation on which to build • Market conditions remain encouraging • Continued focus on delivering value for money and service quality • Further strong and profitable growth in the second half and the longer term Questions and Answers
Slide 52: Interim Results Presentation 2004
Serco Group plc Interim Results Presentation 2004